Posted by: Ben Steverman on March 24, 2010

Ignore for a moment the depressed real estate market, $3-per-gallon gas prices and long lines at the unemployment office. Despite all the gloom, this could be a good year for luxury retailers. Seriously.

The jobless will probably not be shopping here: The featured offering on the Saks web site is Yves Saint Laurent’s new $1,400 purse. Yet same-store sales at Saks are up an average of 6.3% over the past three months.

And investors are getting excited about Saks’ prospects. So far this year, Saks shares are up 40%. That’s 35 percentage points more than the broad S&P 500 and 30 points more than other consumer discretionary stocks within the index. In fact, this year Saks has outpaced every one of the 70 consumer discretionary retailers in the S&P 500.

It’s not that all American consumers have decided they can splurge on designer goods. Rather, only particular American consumers are opening their wallets again.

Lisa Walters of research and consulting firm Retail Eye Partners explains why in a Mar. 23 research note that explores a split between high-end and low-end consumers.

Lower income brackets are less likely to say their financial situation has improved and are more pessimistic about the economy. Meanwhile, shoppers who make more than $100,000-per-year are:

…the most confident that the economy will improve next year. [They are] back to spending more freely due to their increased optimism. [High-end shoppers] are less hesitant about spending at or close to full price.

Against this backdrop, on Mar. 23 JPMorgan (JPM) analyst Charles Grom upgraded his rating on Saks shares from “neutral” to “overweight.” He offers several reasons, including the belief that Saks is emerging from the recession “a stronger company,” with lower costs, a stronger balance sheet and “significant long-term opportunities ahead.” His estimates for Saks’ 2011 earnings are twice the consensus expectations of other analysts surveyed by Bloomberg, he notes.

After meeting with Saks executives, Grom writes:

[Saks] credits a more stable stock market and improved consumer confidence for bringing (a) more frequent visits from its core shoppers, [and] (b) a return to shopping from customers have been on a [one-to-two year] hiatus from the luxury channel.

And, he says, customers are spending more on items that were heavily discounted a year ago.

After two years or more of cutting back on spending, wealthy shoppers are tired of doing without their luxury goods. But don’t mistake a return of some luxury shoppers to a return to 2007-style shopping sprees.

Saks’ revenue last year was down $592.55 million, or 18.4%, from record sales in the fiscal year that ended February 2008. Even under Grom’s estimates — more optimistic than most — 2011 sales would remain $315 million below peak levels.

Luxury may be back, but it’s not yet back to normal.

Reader Comments

Mike

March 25, 2010 12:19 AM

Yes, up to 9/share from 1.55 a year ago and a peak of ~24 at its best. Not quite a comeback. Saks and Neiman's have been slashing prices like crazy (70% off is not abnormal). Wealthy shoppers not dead but the aspirational shoppers are. And if they aren't yet because of denial they will be when credit card interest rates start to go up. Bottom line: they're never going to be selling as many $5k Birkin bags like they used to...

AJ

March 25, 2010 4:54 PM

Au contraire. If anything, sale of Birkins will rise nicely. It's the $150 key chain from Gucci that will take the brunt of the hit.

Empower Private Investing

March 28, 2010 3:08 PM

It's true. AJ is right about the smaller knick-knacks out there that don't necessarily have practical purposes that can be 'justified'. Saks is one of many examples of upper end retail doing so well. Apple (AAPL) is another. Whether iPhone or iPad, records are still being met, and people are justifying the expenses.

How about retirement and the different approaches these days? People are burned from the all too common stock investing and are having a hard time finding (trusting) good financial planners. Surprisingly, more investors are cashing in whats left and entertaining asset purchases with split equity management Is this good for the economy? Definitely. Jobs. Assets. Equity. Pretty cool stuff.

Your best days are ahead.

mike

April 17, 2010 7:48 AM

Hi Friends..

i am mike from United State.Here really a very great comment on this blog.. i am scholar student in california. This article is very very nice.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money.
Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.